Twenty five years ago today stock markets around the word collapsed. Roland
Gribben was The Telegraph's Business Editor at the time and tells his story.

The shock still registers. Twenty five years ago today stock markets around the word collapsed.

Investors, politicians and central bankers pushed a variety of panic buttons. The world as we knew it then looked as if it was heading for, or had hit, the rocks. Black Monday - October 19, 1987 - for some represented the prelude for the financial crisis of the last decade but it is difficult to provide a convincing link, particularly as the main cause of the slump has been attributed to computer programme trading, at the time a Wall Street novelty. There were others, notably worries about a US recession influenced by the huge jump in trade and budget deficits. Was Wall Street due for a fall in any event after a 40pc rise in the Dow Jones index since the start of the year?

The City was still attempting to bed down after Big Bang when Black Monday dawned. De-regulation, the end of distinctions between stockjobbers and brokers, the arrival of screen trading and the foreign invasion were providing the raw material for building the City into a bigger global financial market. But the market antennae at the time was not sufficiently attuned to anticipate the devastation in the market or cope with it. The City of course was not alone.

The build-up to Black Monday felt in retrospect like something from a black comedy. The City in effect found itself wrestling with two unexpected hurricanes, one financial and the other, a devastating Mother Nature production. Overnight on Thursday October 15, the South East was battered by its most severe storm for more than 250 years. Transport was disrupted, fallen trees and debris littered roads, and thousands were without power. Few dealers made it to their desks and stock market trading was suspended twice, but the Daily Telegraph City office had an almost full staff turn-out.

The disruption meant the City was unable to reflect in late dealings the start of the Wall Street fall-out on Friday October 16, when the Dow Jones index recorded its biggest ever one day slide at the time, a fall of 108.36. City traders and investors spent the weekend repairing damaged gardens in between trying to guess market reaction and assessing the damage.

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They took some comfort from US forecasters suggesting the downturn would be short-lived and as Monday morning loomed the consensus was that London might contain the damage to 50-60 points.

Some hope. A tidal wave of selling saw the Hong Kong index slump 420.8 points and the Nikkei in Tokyo 620 points.

London stood no chance of stemming the tide. Fear gripped the market. Traders were numb with shock.

Some cried as screens remained red throughout the day. The Bank of England was caught off guard as the FTSE slumped 11pc with a record one day fall of 183 points while Wall Street began to relive its 1929 nightmares as the Dow Jones index collapsed by a staggering 23pc or 508 points. Black Monday was followed by Black Tuesday with the London market down another 12.2pc and 6pc on Thursday.

The panic was reflected among policymakers. Calls for an increase in interest rates found limited support but the threat from James Baker, US Treasury Secretary, to let the dollar slide rather than raise the cost of borrowing was described by the Telegraph’s City Editor as perhaps “the most expensive sentence ever uttered.” Not for the first time President Reagan said he was puzzled by the financial events.

Mr Baker back-tracked after a slanging match with Germany over interest rates as the central bankers followed Corporal Jones and tried to spread the “don’t panic” message. Enter Alan Greenspan, just two months in the job as chairman of the Federal Reserve, the powerful driver behind the US economy. He promised to save any US institution suffering liquidity problems from the crash, a commitment that comforted bankers and Wall Street until the Lehman Brothers debacle in 2008.

Nigel, now Lord, Lawson, Britain’s Chancellor at the time, thinks Mr Greenspan got it “completely wrong” but does not believe the seeds of the current crop of financial crisis were sown back in 1987. He also found himself under considerable pressure when Mr Greenspan mounted a covert operation to pull the sale of the government’s remaining holding in BP shares because Wall Street and City bankers were sitting on heavy losses from their commitment to underwrite an issue that had suffered during the Black Monday route. Mrs Thatcher backed her Chancellor and said ‘no’ leaving the banks to stump up.

There were salutary lessons all round. A still youngish Rupert Murdoch had his first billion dollar experience – the fall in the market value of News International. By the end of the year he had recovered most of it as a sequence of interest rate cuts – three of them by Mr Lawson – produced deep sighs of relief and share indices were in recovery mode. But the City had done itself no favours. The business world argued the crisis represented financial panic rather than any fundamental economic weakness and felt Black Monday could have been avoided.

Roland Gribben writes for The Telegraph on finance, energy and business. At the time of Black Monday, he was The Telegraph's Business Editor.